Over many decades, the centralized power grid — a one-way flow of electricity, generated by large, remote power plants and distributed over miles of transmission lines to homes and businesses — succeeded in delivering electricity across continents to billions.

But in recent years the system’s shortcomings have become increasingly evident. The conventional grid is largely dependent on planet-warming fossil fuels. And because it’s so big and interconnected, it’s vulnerable to massive disruption by natural disasters and susceptible to physical or cyberattack.

Across the globe, regulators, policy makers and businesses are collaborating on creating a new and better electricity delivery system — one that will be more stable and secure, cleaner and cheaper, and able to accommodate larger shares of variable renewable energy sources. Prepare for the arrival of the renewable energy microgrid.

Trends With Benefits

Departing from the traditional model, a microgrid is defined by the ability to generate power at or near the point of consumption independent of other generators. As the U.S. Department of Energy puts it: “A microgrid is a local energy grid with control capability, which means it can disconnect from the traditional grid and operate autonomously.”

Most of the time, a microgrid will deliver electricity within its boundary — a military base, say, or university campus — while maintaining a connection to the larger electricity grid. But in an emergency, such as a wildfire, earthquake or hurricane, a microgrid can be safely isolated from the conventional grid and continue to deliver power.

The precursors to microgrids are simpler systems consisting largely of a central power plant serving a single building or campus with backup provided by diesel generators. But these systems have drawbacks. By relying on a single generator, they are less secure, and because they usually burn fossil fuels to generate electricity, they perpetuate dependence on finite fuels that fluctuate in price and contribute to climate change.

Microgrids under development today benefit from two trends: the declining cost of energy storage and the increasing affordability of renewable energy, especially wind and solar power. Lithium-ion battery prices havefallen by 40 percent since 2010.

Taken together, the price reductions make it possible to bring together variable clean energy and storage into renewable energy microgrids that can support, or operate independently from, the main electricity grid.

The result is a small-scale electricity-generating powerhouse that can balance and smooth variations in energy supply; provide services, such as voltage support and frequency regulation, to the conventional grid; and export electricity to the larger grid to make a profit or provide a boost during emergencies. Most notably, it can also keep its operator — whether a university campus, military installation, hospital or other facility — up and running in the event the main grid goes down.

“In some of these more forward-thinking microgrid approaches, it’s been resiliency, the availability of the grid for some sort of critical mission” that’s the big draw, says Paul Orzeske, president of Honeywell Building Solutions, which installs and designs systems that enable buildings to operate more efficiently.

Orzeske says the microgrid projects Honeywell is designing for its customers place high value on the centralized management of supply and demand. These energy management systems ensure, he says, “that you have very dynamic capability of adjusting the demand if the supply was going to drop off; if the supply hit an economic point where you want to be off the grid; if a storm was coming; if you had an opportunity to maximize wind resources, and then [re-adjust] when those wind resources went away after an hour or two.”

Where Microgrids Make Sense

Microgrids already make sense in areas with high energy prices, in remote locations (such as islands that have historically burned expensive imported diesel fuel for electricity), or facilities, such as military installations, that cannot risk losing power.

Take, for example, a project under development on the Hawaiian island of Kauai. The U.S. Navy’s Pacific Missile Range Facility is located at the end of one branch of Kauai’s electricity distribution system. Eager to clean its power supply and reduce its energy bills — the average retail price of electricity in Hawaii is three times the national average — the Navy installed multiple rooftop solar arrays.

But when the Navy later sought permission to connect a large solar array atop a hangar, the local utility, Kauai Island Utility Cooperative, resisted on the grounds that electricity generated by the panels could strain its equipment and lead to backfeeding — power flowing in the opposite direction than usual — at the point of interconnection between the base and KIUC grid.

The Navy turned to experts at the National Renewable Energy Laboratory for a solution, and Honeywell was tasked with designing the energy management system used to smooth the surge and slumps in solar output triggered by passing clouds. The system couples fast controls with a small battery to rapidly respond to variations in the solar power supply.

According to Honeywell, discussions are underway to expand and upgrade the energy management system to a cyber-secure microgrid and use the solution at other U.S. military installations to enable greater penetration of renewable energy.

In remote areas without reliable access to the conventional grid, microgrids that can reduce consumption of expensive and dirty diesel fuel by substituting renewable energy and storage are also the obvious choice.

“If the business case for storage is built on reducing or optimizing the use of diesel fuel, it doesn’t take much to get a positive return on investment (ROI) for a storage asset,” Anissa Dehamna, a senior research analyst with Navigant Research’s Smart Energy practice, recently wrote at Navigant’s blog.

“In the case of remote microgrids,” she added, “the storage system typically provides several benefits: diesel reduction, higher renewables penetration, and improved power quality. Even if the business case is based only on diesel reduction, though, the ROI is still positive in less than 4 years across all advanced battery chemistries.”

In an ironic twist, Bill Siddall, vice president of marketing and sales for microgrid technology supplierTM3 Systems, says his company has been approached to develop microgrids capable of running on renewable energy for the energy sector, including offshore oil and gas drilling platforms.

“You would think, ‘Oil and gas, why do they care? They make the fuel, why would they care how much it costs?’” he says. But offshore platforms that are not tied to mainland power grids typically generate electricity by burning huge quantities of natural gas in inefficient gas turbines. With a microgrid in place, solar panels and wind turbines could be added to the generation mix, and gas turbines would operate at full capacity, boosting efficiency. Energy storage would capture surplus electricity generated by the gas turbines, enabling them to be turned off when not needed, and balance output from the mix of generation sources.

Forecast: Sunny

A new Sierra Club report estimates that the off-grid, clean energy services market, including so-called “skinny grids” that bundle solar and energy-efficient LED lighting in developing countries, will be worth $12 billion annually by 2030. Navigant Research forecaststhat remote microgrids will represent an $8.4 billion industry by 2020, with the largest number of deployments occurring in the developing world and activity increasing in North America and Europe.

On the Danish island of Bornholm, isolated in the Baltic Sea, local utility Østkraft A/S is building a showcase microgrid demonstration projectincorporating a mix of low-carbon solutions, including three-dozen wind turbines, biomass-fired district heating plants and a biogas power plant. Renewable energy microgrids are also expected to expand in areas with universal electricity access, especially in markets such as California where solar and energy storage have taken off.

Last fall, Chris Marnay, a microgrid expert recently retired from Lawrence Berkeley National Lab’s Grid Integration Group, told me: “It’s the facilities that want abnormally high-quality power where we see most of the action at the moment” — military bases, research facilities, and data centers.

But the market is tipped to break open to more sectors. GTM Research says U.S. microgrid capacity will exceed 1.8 GW by the end of 2017, up from around 1 GW today, with cities, communities and public institutions fostering the next round of microgrid adoptions. And, according to GTM Research’s Mike Munsell, the share of microgrids that integrate solar “will grow significantly over the next three years.”

“This development is happening whether the utility, or regulator, encourages it or not,” note the authors of a reportpublished by the California Public Utilities Commission in April.

In February 2014, the U.S. Department of Energy announced $7 million in funding to advance the design of community-scale microgrids with a capacity as large as 10 megawatts.

The report recommends that regulators “consider the utility as a distribution system operator” responsible for ensuring that it can distribute electricity generated on the customer or the utility’s side of the meter.

It suggests developing appropriate standards and requirements to ensure that microgrids can reliably and safely interconnect and interact with the grid. And it also encourages regulators to survey the state’s grid to identify locations best suited for microgrids, such as those that experience frequent outages or grid congestion, and areas of high penetration of renewable energy.

Getting the policy right is critical, but so too are financial incentives. In February 2014, the U.S. Department of Energy announced$7 million in funding to advance the design of community-scale microgrids with a capacity as large as 10 megawatts, and also recently unveiled a proposal offering $6.5 million in matching grants to technologies that address the challenges of integrating renewable energy and storage into the grid.

The funding is expected to help California regulators meet the state’s landmark energy storage mandate, which requires investor-owned utilities to add 1.3 gigawatts of energy storage to their grids by 2020. Greentech Media’s Eric Wesoff reportsthat in 2013 more SGIP applications were submitted for energy storage than for any other technology.

What the future holds for renewable energy microgrids depends on many variables: regulations, incentives, the future role of the incumbent utilities and more. But if current policy, technology and pricing trends are any indication, the conditions are clearly in place to facilitate mainstream adoption of microgrids that can provide a secure, clean and increasingly affordable complement — or alternative — to the conventional power grid.

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